What If There Is No GM IPO? Breaking Up The Car Company

There are rumors that GM will delay its IPO and others that it will sell preferred stock along with common. The need to sell preferred is a sign that GM believes some investors want an extra incentive to hold shares in the company–shares which are risky to own if the economy falters the way that it has already begun to.

Some analysts believe that a recent recall of 243,000 GM cars is serious enough that the No.1 US car company should let the problem blow over before its IPO. Others say that car sales will drop dramatically in the last five months of the year. Investors will steer clear of the shares, sensing that.Some potential shareholders may be disturbed by the unexpected departure of Ed Whitacre, the third CEO that GM has had in a little over three years. A company which is about to be run by a fourth chief executive is likely to have a great deal of turmoil in the management ranks. GM, in other words, is not stable in the upper reaches of the executive suites.

GM is planning to raise about $12 billion at a valuation of the company of around $50 billion. The US taxpayers own 61% of GM and would need to get back well over $40 billion to cover their investment after GM has paid back the loan portion of the Treasury contribution to the car company’s bailout–which it has already done.

It may have dawned on the federal government that GM is worth more in pieces than as a whole. This is not mentioned often, but GM’s Chinese operations are large enough so that it is the No.1 car maker on the mainland–or perhaps tied with VW for the spot. Those Chinese operations are certainly worth in the billions of dollars or more. China is not only the world’s largest vehicle market; it is one of the fastest growing. Firm’s like Ford (NYSE: F) and Toyota (NYSE: TM) who covet the top spot in the People’s Republic would pay top dollar for GM’s operations there.

As for GM’s US unit, there are not many companies that want 19% of the America market. Most of the world’ largest car firms already have a footprint in the US. The sole exception to that is VW, which has less than a 1% share. Its stated goal is to become the No.1 car company in the world, displacing Toyota. It cannot do that without a major presence in the US.

GM is probably worth more broken up than as a public company. The Treasury would do well by the taxpayers to press that point.

Douglas A. McIntyre